Daily Rate Update: June 4th -8th

Housing sentiment continued to strengthen in May, but high home prices complicate consumer purchase confidence, reports Fannie Mae. Higher home prices are due in part to limited inventories of homes for sales on many markets across the nation. The Fannie Mae Home Purchase Sentiment Index (HPSI) rose 0.6 points in May to 92.3, reaching a new all-time survey high for the second consecutive month. The net share of respondents who reported that now is a good time to sell a home increased to 46% in May, and is now up 14 percentage points year over year. However, the net share of those surveyed said now is a good time to buy, decreased to 28%, showing little improvement in the past 12 months.

Not much action in the U.S. capital markets today as the investing world sits on their hands awaiting next week’s Fed decision and monetary policy statement. Currently, there is a 90% chance of a 0.25% hike to short-term Fed Funds Rate. The Federal Open Market Committee meeting begins Tuesday and ends Wednesday at 2:00 p.m. ET with the rate announcement and statement. The Fed will also release economic projections while Fed Chair Powell will hold a press conference at 2:30 p.m. ET.

Americans filing for first-time unemployment claims continue to hover near lows seen in the early 1970’s as the labor market is now near full employment. Weekly Initial Jobless Claims fell 1,000 to 222,000 and have remained below the 300,000 mark for 170 weeks, a sign of strength in the sector. The four-week moving average of initial claims, which irons out seasonal abnormalities, rose 2,750 to 225,500 last week.

Mortgage rates edged lower this week and remain at historically low levels. Freddie Mac reports that the 30-year fixed-rate mortgage fell two basis points to 4.54% with an average 0.50 in points and fees. Freddie Mac says that while the very healthy job market continues to fuel interest in buying a home, the supply shortages in most markets are pushing prices higher and currently keeping sales at a standstill.

Gas prices at the pumps were unchanged this week but have been pushing higher as the spring and summer driving season is underway. Motor club AAA reports that the national average price for a regular gallon of gasoline is at $2.94, up from $2.81 a month ago and up from $2.36 a year ago. “Nearly 80% of Americans say the price of gasoline is too high at $3 per gallon.” said Jeanette Casselano, AAA gas price expert. “Crude oil prices are falling, but it likely won’t be enough to drop gas prices more significantly this summer.”

Mortgage rates declined in the latest which sparked a jump in mortgage applications, reports the Mortgage Bankers Association (MBA). The MBA reports that its Market Composite Index, a measure of total mortgage loan application volume, rose 4.1% in the latest week. The refinance index rose 4%, while the purchase index increased 4% from the previous week. The 30-year fixed-rate conforming mortgage fell to 4.75% from 4.84% with an average 0.46 in points. Mortgage rates have been on the rise in 2018, but from an historical basis, they remain just above all-time lows.

Just some numbers from the recent Census Bureau report on homeownership rates: The homeownership rate of 64.2% in the first quarter of 2018 was not statistically different from the rate in the first quarter of 2017 (63.6%) and virtually unchanged from the rate in the fourth quarter 2017 (64.2). National vacancy rates in the first quarter 2018 were 7% for rental housing and 1.5% for homeowner housing. The rental vacancy rate of 7% was virtually unchanged from the rate in the first quarter 2017 (7%) and not statistically different from the rate in the fourth quarter 2017 (6.9%).

Limited inventories of homes for sale on the market continue to push home prices higher as “new construction fails to keep up with and meet new housing growth or replace existing inventory,” according to CoreLogic Chief Economist Frank Nothaft. CoreLogic reports that home prices, including distressed sales, rose 6.9% from April 2017 to April 2018, while there was a 1.2% gain in April 2018 compared with March 2018. Looking ahead, CoreLogic forecasts a 5.3% increase in home prices from April 2018 to April 2019. Nothaft says, “More construction of for-sale and rental housing will alleviate housing cost pressures.”

The job market continues to strengthen with many employers reporting that it is getting tougher and tougher to fill openings. The Labor Department reported that its JOLTS (Job Opening and Labor Turnover Survey) report showed there were 6.7 million job openings in April from 6.6 million in March. The 6.7 million is the highest recorded since the government began the survey back in December 2000. At this point in time, the job market is considered to be at or near full employment.

The service sector of the economy grew in May for the 100th consecutive month. The ISM Service Index rose to 58.6 in May from the 56.8 recorded in April and above the 58.0 expected. Within the report it showed that the employment component rose in May as well as other key sectors. The report went on to say that the majority of respondents are optimistic about business conditions and the overall economy. There continue to be concerns about the uncertainty surrounding tariffs, trade agreements and the impact on cost of goods sold.

The National Association for Business Economics (NABE) feels the Tax Cut & Jobs Act will boost economic growth in 2018 and 2019, but the U.S. could fall into a new recession in 2020. NABE expects 2.8% Gross Domestic Product this year, slightly lower from its 2.9% reported in March. The slightly less optimistic view is due in part to the trade policies that could have a negative impact on the economy. The current economic expansion began in mid-2009 and is currently the second longest in U.S. history and will be the longest if it continues past June 2019.

There were no U.S. bank failures during the first five months of 2018, the first time this has occurred since 2006. Ultimately, there were no bank failures in 2006, the last calendar year when that happened. Since 2007, 531 banks have failed, an average of 48 per year over the last 11 years.

The two-day Federal Open Market Committee (FOMC) meeting will kick off its regularly scheduled meeting next week, June 12-13. It is expected that the meeting will end on Wednesday with a quarter-point hike in the short-term Fed Funds Rate (FFR). The Fed Funds Rate is the rate at which depository institutions lend reserves held at the Federal Reserve to other depository institutions overnight. The FFR influences everything from home and auto loans to credit cards along with lenders’ Prime Rates.